COLLEGE STATION – Mortgage rates will increase in the coming year, easing housing demand during a time of low supply, according to an economist at the Texas Real Estate Research Center at Texas A&M University.
"It’s a sellers’ market right now and the housing sector is really strong," Dr. Luis Torres told Texas A&M Today. "The pandemic has increased the preference for home ownership, but supply has been lagging behind since even before the pandemic. So the problem right now is that you have really strong demand facing weak supply and that’s pushing up prices at a very high rate."
Torres said potential homebuyers may want to "be patient to find their dream house."
"If you find a house you really want and you’re in a position to buy, go for it, but don’t overpay because you don’t want all your money going into a mortgage payment each month," he said.
According to Torres, demand should weaken as the Fed's monetary policy increases mortgage rates. "And there’s possibly two rate hikes in the coming year due to inflation," he said. "When inflation is higher, nominal interest rates increase. That will put the brakes on housing demand.
"Also the high prices we’re seeing are going to price some people out and that will decrease demand as well. So we’ll possibly be going back to more normal trends than we saw during the pandemic."
Affordability remains an issue.
"In Austin, home prices are up 30 percent over the last year, Dallas-Fort Worth, 20 percent, and Houston and San Antonio, 18 percent," said Torres. "And that’s happening all around Texas, not just the major cities—we have double digit price growth throughout the state."
The average home price in Texas in January 2020 was $277,945 before hitting $388,555 in June 2021. In November 2021 it fell just slightly to $382,862.
“It’s really hard to find a house to buy right now,” Torres said. “Not only are the prices high, the competition is greater. You may put in a bid for a house and multiple other people do, too."
Torres said the supply problems contributing to the shortage began happening before the pandemic due to factors such as increasing lumber prices, constrained land development, and changes to laws and regulations rolled out in the wake of the 2007-08 housing crisis.
He said when the pandemic happened, the housing market was one of the sectors that benefited. Add historically low mortgage rates to the equation, and the preference for homeownership grew.
The current shortage and high prices are also affecting renters, Torres said. Nationwide, the average rent for a single-family home rose 10.2 percent in September 2021, the fastest year-over-year increase in more than 16 years.
Torres said there is no "housing bubble" like there was in the early 2000s crisis.
"At that time, there was lax oversight and loose lending standards," he said. "The supervising institutions weren’t doing their jobs and allowing all sorts of this malpractice. Also, many people were buying multiple houses as investment properties to flip. But that’s not happening right now. People are buying just a house to live in and prices are not going down. For nominal housing prices to fall, that’s a really rare occurrence."
As far as high home prices in Texas, Torres said, "We’re not California yet, but look out in 20 years or so."
The Texas Real Estate Research Center has more housing news online for free: